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What are the implications of the new consumer credit switch rules for firms? David Cook, associate in the regulatory team at Pannone (part of Slater & Gordon), says the proposals require firms to undertake a strikingly comprehensive analysis of their business.
What are your observations in relation to the consumer credit switch?
It seems to me that the new rules will have a fairly significant impact on a broad range of firms. While media coverage has been focused on the payday lending sector—and that is a sector in need of tighter regulation if ever there was one—the effect will be felt in a much wider sense. The Financial Conduct Authority (FCA) regulation applies to any firm or individual offering credit cards and personal loans, selling goods or services on credit, offering goods for hire, or providing debt counselling or debt adjusting services to consumers. We believe there are many businesses that do not believe that the new regulations apply to them and it is important for any such businesses to deal with the situation now, before the FCA comes knocking.
Have you noticed any recurring issues?
Recurring issues have really related to financial promotions. The FCA has stated that it reviewed a sample of advertisements and found examples that fell below the standard required by, for example, claiming that a product will help repair credit ratings. The FCA has therefore publicly commented that consumer credit firms need to raise their advertising standards and do more to ensure their promotions do not mislead customers. Firms are advised to take the initiative with this issue sooner rather than later, in order that they are properly compliant before the FCA really begins to bare its teeth.
How is the FCA planning to deal with the firms that are unlicensed because they missed the deadline?
The FCA is currently operating an interim regime for the regulation of consumer credit which will last from 1 April 2014 until 1 April 2016, in order to allow firms the time to adjust to the new regime. Existing Office of Fair Trading licence holders are able to apply for an interim permission for this transitional period, which will expire by 1 April 2016 at the latest.
What problems does this cause?
All firms with interim permissions that want to continue to carry on regulated consumer credit activities will have to apply to the FCA for full authorisation, or a variation of the permission, by 1 April 2016. Businesses need to be aware of this issue—it seems likely that many will put these issues to the back of their mind once they have taken interim steps and, by the time of April 2016, may have forgotten about it and run the risk of breaching.
What are your best practice tips?
The FCA has warned that firms that were already regulated by the FCA or Prudential Regulation Authority will not have automatically received an interim permission. Needless to say, firms new to the regime will also need to seek permission. The proposals require firms to undertake a strikingly comprehensive analysis of their business, including systems, regulatory reporting mechanisms, and consumer disclosure—as well as their business models and governance frameworks.
What are your predictions for the future?
The consumer credit sector has faced increasing criticism in recent years, particularly over the growing number of payday lenders, and the FCA has always been keen to emphasise that it has stronger powers and more resources than the OFT and that firms ‘should feel the difference under [their] regime from day one’. This is sure to be expressed by way of an increase in FCA oversight for businesses that the FCA feel are breaching, whether explicitly or with respect to the spirit of the regulations.
Interviewed by Nicola Laver.
The views expressed by our Legal Analysis interviewees are not necessarily those of the proprietor.
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